QUESTION 1 Akok Bhd was incorporated in 2013 initially as a modest company involved in producing of traditional foods in Kelantan. After five years in operation, the company started expanding its business operation through the acquisitions of multiple companies. Acquisition of Mas Bhd On 1 January 2018, the company acquired 80% of the ordinary shares of Mas Bhd. Akok Bhd has also acquired two-third of the 6% debentures in Mas Bhd for RM100 million when the retained profit and revaluation reserve of Mas Bhd were RM20 million and RM15 million, respectively. Payment for both acquisition of shares and 6% debentures in Mas Bhd was made by cash. Mas Bhd's land had a fair value of RM6 million more than its carrying amount on the date of acquisition. In addition, on the date of acquisition, a homegrown brand of Mas Bhd with an indefinite useful life was valued at RM3 million by Akok Bhd. Prior to the acquisition, the brand was not recognized by Mas Bhd. Subsequently, on 1 September 2020, Akok Bhd enhanced its position by acquiring an additional 10% of the ordinary shares of Mas Bhd for cash consideration of RM13 million and this transaction has not yet been recorded. Acquisition of Tanjung Bhd On 1 July 2020, Mas Bhd acquired 60% of the ordinary shares of Tanjung Bhd. The consideration transferred for the acquisition was paid by cash of RM 148 million. Acquisition of Bunga Bhd On 1 July 2020, Akok Bhd has also acquired 10 million out of the 25 million ordinary shares of Bunga Bhd for cash consideration of RM16 million. Bunga Bhd is a company focusing on marketing and distribution of manufactured food products. The fair value exercise conducted on the date of acquisition revealed that the fair value of the net assets of Bunga Bhd also equal to their carrying amounts. Bunga Bhd was formed on 1 January 2020 and the profit for the year ended 31 December 2020 was RM28 million. On 30 October 2020, Akok Bhd sold goods costing RM5 million to Bunga Bhd at a margin of 25%. No remaining inventories from this sale existed at the end of the year. The followings are the financial statements of the companies for the year ended 31 December 2020. Statement of Financial Position as at 31 December 2020 Akok Bhd Mas Bhd Tanjung Bhd RM million RM Million RM million Property, Plant and Equipment 609 388 264 Investment in Subsidiaries: Mas Bhd 490 Tanjung Bhd 148 Investment in Bunga Bhd 16 Intangible assets 7 2 6 Inventory 50 48 94 Trade receivables 30 65 86 Bills receivable 58 57 Bank 41 44 1 Total 1,263 753 508 Share capital 720 380 240 Retained profits 280.5 128 8 Revaluation reserve 60 30 6% Debentures 150 Bank loan 78.5 184 Trade payables 72 40 45 Bills payable 46 21 26 Accruals 6 4 5 Total 1,263 753 508 20 - Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2020 Akok Bhd Mas Bhd Tanjung Bhd RM million RM Million RM million Revenue 473 273 140 Cost of Sales (280) (150) (94) Gross Profits 193 123 46 Loss on disposal of PPE (1) Investment income 15.5 Interest income 4 Administration expenses (42) (39) (22) Selling & distribution expenses (41) (23) (20) Finance cost (7) (6) (14) Profit Before Taxation 121.5 55 (10) Taxation (20) (10) Net Profit 101.5 45 (10) 200 Statement of Changes in Equity of Akok Bhd for the year ended 31 December 2020 Ordinary Share Preference Revaluation Retained Capital Share Capital Reserve Profits RM million RM million RM million RM million Balance b/f 600 120 60 Profit for the year 101.5 Dividend paid - ordinary (15) - preference (6) Balance c/f 600 120 60 280.5 Statement of Changes in Equity of Mas Bhd for the year ended 31 December 2020 Ordinary Preference Revaluation Retained Share Capital Share Capital Reserve Profits RM million RM million RM million RM million Balance b/f 300 80 30 102 Profit for the year 45 Dividend paid - ordinary (15) preference Balance c/f 300 80 128 30 Statement of Changes in Equity of Tanjung Bhd for the year ended 31 December 2020 Ordinary Preference Revaluation Retained Share Capital Share Capital Reserve Profits RM million RM million RM million RM million Balance b/f 200 40 4.5 Profit for the year (10) Dividend paid - ordinary preference (2) Balance clf 200 40 (7.5) During the financial year ended 31 December 2020, the following transactions took place: 1. Akok Bhd disposed of equipment to Mas Bhd at a loss of RM1 million. 2. Mas Bhd sold on credit goods at RM10 million to Akok Bhd with a profit margin of 20%. Half of these goods remained in the closing inventories of Akok Bhd at the end of the accounting year. As at 31 December 2020. Akok Bhd has settled 50% of the amount due to Mas Bhd relating to the sales. 3. During the post acquisition period, Akok Bhd sold goods on credit to Tanjung Bhd for RM6 million. The cost of goods to Akok Bhd amounted to RM4.5 million. Tanjung Bhd sold one-third of these goods for RM3.5 million. At the end of the accounting year, Tanjung Bhd settled the amount due to Akok Bhd. 4. Both Akok Bhd and Mas Bhd have recorded and paid the dividend on preference shares and interim dividend on ordinary shares. In addition, both companies declared a final ordinary dividend of RM20 million and RM10 million, respectively on 31 December 2020. However, both companies have not recorded these proposed dividends. 5. Due to losses incurred during the year, no ordinary dividend was paid or proposed by Tanjung Bhd. However, the company has proposed a full dividend for its 5% cumulative preference shares on 31 December 2020. Tanjung Bhd has not recorded this transaction. 6. Mas Bhd has recorded and paid interest on the 6% debentures for the first 8 months of the year, and Akok Bhd has recorded its portion too. However, both companies did not adjust to accrue the balance of the four months interest due. 7. During the year ended 31 December 2020, Akok Bhd revalued its land at a surplus of RM20 million. The adjustment was not made in the books of Akok Bhd to reflect the value. 8. On 30 November 2020, the land of Mas Bhd was revalued again, which resulted in an increase of RM2 million. The revaluation reserve obtained has not been incorporated in Mas Bhd's account as at year end. 9. Half of the bills payable of Tanjung Bhd were in favour of Mas Bhd, which has discounted RM4 million of the bills. 10. It is the group policy to provide depreciation on building at 5% per annum and on plant and equipment at 10% per annum, for which, full depreciation is to be provided in the year of acquisition but none in the year of disposal for all assets. 11. The goodwill on the acquisition of Mas Bhd was impaired by RM3 million each year for 2019 and 2020. 12. It is the group policy to value the non-controlling interest based on its proportionate share of the net assets of the subsidiary on the acquisition date. 13. It is assumed that profits or losses accrued evenly throughout the years. c) Compute gain or loss on the second acquisition of Mas Bhd. (3 marks) Note: Show all workings to two decimal point (RM million) QUESTION 1 Akok Bhd was incorporated in 2013 initially as a modest company involved in producing of traditional foods in Kelantan. After five years in operation, the company started expanding its business operation through the acquisitions of multiple companies. Acquisition of Mas Bhd On 1 January 2018, the company acquired 80% of the ordinary shares of Mas Bhd. Akok Bhd has also acquired two-third of the 6% debentures in Mas Bhd for RM100 million when the retained profit and revaluation reserve of Mas Bhd were RM20 million and RM15 million, respectively. Payment for both acquisition of shares and 6% debentures in Mas Bhd was made by cash. Mas Bhd's land had a fair value of RM6 million more than its carrying amount on the date of acquisition. In addition, on the date of acquisition, a homegrown brand of Mas Bhd with an indefinite useful life was valued at RM3 million by Akok Bhd. Prior to the acquisition, the brand was not recognized by Mas Bhd. Subsequently, on 1 September 2020, Akok Bhd enhanced its position by acquiring an additional 10% of the ordinary shares of Mas Bhd for cash consideration of RM13 million and this transaction has not yet been recorded. Acquisition of Tanjung Bhd On 1 July 2020, Mas Bhd acquired 60% of the ordinary shares of Tanjung Bhd. The consideration transferred for the acquisition was paid by cash of RM 148 million. Acquisition of Bunga Bhd On 1 July 2020, Akok Bhd has also acquired 10 million out of the 25 million ordinary shares of Bunga Bhd for cash consideration of RM16 million. Bunga Bhd is a company focusing on marketing and distribution of manufactured food products. The fair value exercise conducted on the date of acquisition revealed that the fair value of the net assets of Bunga Bhd also equal to their carrying amounts. Bunga Bhd was formed on 1 January 2020 and the profit for the year ended 31 December 2020 was RM28 million. On 30 October 2020, Akok Bhd sold goods costing RM5 million to Bunga Bhd at a margin of 25%. No remaining inventories from this sale existed at the end of the year. The followings are the financial statements of the companies for the year ended 31 December 2020. Statement of Financial Position as at 31 December 2020 Akok Bhd Mas Bhd Tanjung Bhd RM million RM Million RM million Property, Plant and Equipment 609 388 264 Investment in Subsidiaries: Mas Bhd 490 Tanjung Bhd 148 Investment in Bunga Bhd 16 Intangible assets 7 2 6 Inventory 50 48 94 Trade receivables 30 65 86 Bills receivable 58 57 Bank 41 44 1 Total 1,263 753 508 Share capital 720 380 240 Retained profits 280.5 128 8 Revaluation reserve 60 30 6% Debentures 150 Bank loan 78.5 184 Trade payables 72 40 45 Bills payable 46 21 26 Accruals 6 4 5 Total 1,263 753 508 20 - Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2020 Akok Bhd Mas Bhd Tanjung Bhd RM million RM Million RM million Revenue 473 273 140 Cost of Sales (280) (150) (94) Gross Profits 193 123 46 Loss on disposal of PPE (1) Investment income 15.5 Interest income 4 Administration expenses (42) (39) (22) Selling & distribution expenses (41) (23) (20) Finance cost (7) (6) (14) Profit Before Taxation 121.5 55 (10) Taxation (20) (10) Net Profit 101.5 45 (10) 200 Statement of Changes in Equity of Akok Bhd for the year ended 31 December 2020 Ordinary Share Preference Revaluation Retained Capital Share Capital Reserve Profits RM million RM million RM million RM million Balance b/f 600 120 60 Profit for the year 101.5 Dividend paid - ordinary (15) - preference (6) Balance c/f 600 120 60 280.5 Statement of Changes in Equity of Mas Bhd for the year ended 31 December 2020 Ordinary Preference Revaluation Retained Share Capital Share Capital Reserve Profits RM million RM million RM million RM million Balance b/f 300 80 30 102 Profit for the year 45 Dividend paid - ordinary (15) preference Balance c/f 300 80 128 30 Statement of Changes in Equity of Tanjung Bhd for the year ended 31 December 2020 Ordinary Preference Revaluation Retained Share Capital Share Capital Reserve Profits RM million RM million RM million RM million Balance b/f 200 40 4.5 Profit for the year (10) Dividend paid - ordinary preference (2) Balance clf 200 40 (7.5) During the financial year ended 31 December 2020, the following transactions took place: 1. Akok Bhd disposed of equipment to Mas Bhd at a loss of RM1 million. 2. Mas Bhd sold on credit goods at RM10 million to Akok Bhd with a profit margin of 20%. Half of these goods remained in the closing inventories of Akok Bhd at the end of the accounting year. As at 31 December 2020. Akok Bhd has settled 50% of the amount due to Mas Bhd relating to the sales. 3. During the post acquisition period, Akok Bhd sold goods on credit to Tanjung Bhd for RM6 million. The cost of goods to Akok Bhd amounted to RM4.5 million. Tanjung Bhd sold one-third of these goods for RM3.5 million. At the end of the accounting year, Tanjung Bhd settled the amount due to Akok Bhd. 4. Both Akok Bhd and Mas Bhd have recorded and paid the dividend on preference shares and interim dividend on ordinary shares. In addition, both companies declared a final ordinary dividend of RM20 million and RM10 million, respectively on 31 December 2020. However, both companies have not recorded these proposed dividends. 5. Due to losses incurred during the year, no ordinary dividend was paid or proposed by Tanjung Bhd. However, the company has proposed a full dividend for its 5% cumulative preference shares on 31 December 2020. Tanjung Bhd has not recorded this transaction. 6. Mas Bhd has recorded and paid interest on the 6% debentures for the first 8 months of the year, and Akok Bhd has recorded its portion too. However, both companies did not adjust to accrue the balance of the four months interest due. 7. During the year ended 31 December 2020, Akok Bhd revalued its land at a surplus of RM20 million. The adjustment was not made in the books of Akok Bhd to reflect the value. 8. On 30 November 2020, the land of Mas Bhd was revalued again, which resulted in an increase of RM2 million. The revaluation reserve obtained has not been incorporated in Mas Bhd's account as at year end. 9. Half of the bills payable of Tanjung Bhd were in favour of Mas Bhd, which has discounted RM4 million of the bills. 10. It is the group policy to provide depreciation on building at 5% per annum and on plant and equipment at 10% per annum, for which, full depreciation is to be provided in the year of acquisition but none in the year of disposal for all assets. 11. The goodwill on the acquisition of Mas Bhd was impaired by RM3 million each year for 2019 and 2020. 12. It is the group policy to value the non-controlling interest based on its proportionate share of the net assets of the subsidiary on the acquisition date. 13. It is assumed that profits or losses accrued evenly throughout the years. c) Compute gain or loss on the second acquisition of Mas Bhd. (3 marks) Note: Show all workings to two decimal point (RM million)